The GCC currencies have lost 15% in nominal effective exchange rate against dollar yet the countries may not fully de-peg their currencies with the greenback, according to HSBC.
“Full depegging from the dollar is highly unlikely,” said Simon Williams, HSBC chief economist (Gulf Markets) in a presentation yesterday.
Terming that depreciation had been a deliberate policy choice, he said within a more flexible regime, all GCC currencies would have appreciated sharply and rates had been forced down at a time when they should have been rising.
He expected that adjustment, if any, would probably be a “straight forward step-change in value of dollar peg” and that small adjustments would have no impact on price growth but would raise expectations on further change.
Unlike other emerging markets, he said currency weakness would not help the Gulf since exports were dominated by dollar-denominated energy commodities and import bore the full brunt of currency weakness.
“Inflation is a direct threat to the region’s competitive position as ability to attract capital and labour will be compromised by rising costs,” he said.
Terming that inflation is no longer a problem confined to Qatar and the UAE, he said revaluation would not solve the inflation problem but it might ease the symptoms.
Stressing that the peg belonged to a different era, Williams said terms of trade had changed hugely but the currency has not moved with it and “the Gulf is more capable of managing its own affairs than it has ever been.”
The possibility of change had increased significantly since inflation was rising and expectations were becoming entrenched, he said.
The GCC currencies have lost 15% in nominal effective exchange rate against dollar yet the countries may not fully de-peg their currencies with the greenback, according to HSBC.
“Full depegging from the dollar is highly unlikely,” said Simon Williams, HSBC chief economist (Gulf Markets) in a presentation yesterday.
Terming that depreciation had been a deliberate policy choice, he said within a more flexible regime, all GCC currencies would have appreciated sharply and rates had been forced down at a time when they should have been rising.
He expected that adjustment, if any, would probably be a “straight forward step-change in value of dollar peg” and that small adjustments would have no impact on price growth but would raise expectations on further change.
Unlike other emerging markets, he said currency weakness would not help the Gulf since exports were dominated by dollar-denominated energy commodities and import bore the full brunt of currency weakness.
“Inflation is a direct threat to the region’s competitive position as ability to attract capital and labour will be compromised by rising costs,” he said.
Terming that inflation is no longer a problem confined to Qatar and the UAE, he said revaluation would not solve the inflation problem but it might ease the symptoms.
Stressing that the peg belonged to a different era, Williams said terms of trade had changed hugely but the currency has not moved with it and “the Gulf is more capable of managing its own affairs than it has ever been.”
The possibility of change had increased significantly since inflation was rising and expectations were becoming entrenched, he said.